| Lecture 2 |
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2.0 Basic Principals Related to the Transmittal of Property at Death Historically, the right of an individual to govern the distribution of his or her property at death was understood to be exclusively at the sufferance of the State: "[T]he dead hand rules succession only by sufferance. Nothing in the Federal Constitution forbids the legislature of a state to limit, condition, or even abolish the power of testamentary disposition over property within its jurisdiction." In Hodel v. Irving, 481 U.S. 704 (1987), the Supreme Court altered this rule granting the government unfettered authority to regulate the laws of descent. Hodel involved the constitutionality of the Indian Land Consolidation Act – a law enacted by Congress to curb the fragmentation of the ownership of Indian lands. Over the years, shares of Indian land had been passed to individual heirs in such small fractions that, in some cases, the share of the rental income was less than one cent per month. The cost of bookkeeping was enormous given the extended partition of the land. Congress passed the Indian Land Consolidation Act to provide an escheat provision sending the property back to the tribe if the fractional share to be transmitted represented two percent or less of the total acreage of the tract and earned the owner less than $100 in the year preceding the year of the escheat. The escheat back to the Indian tribe was to be accomplished without payment to the individual land owner. In Hodel, the Supreme Court held: "There is no question, however, that the right to pass on valuable property unto one's heirs is itself a valuable right...similarly, the regulation here amounts to virtually the abrogation to pass on a certain type of property – the small undivided interest – to one's heirs...the fact that it may be possible for the owners of these interests to effectively control distribution upon death through complex inter vivos transactions such as revocable trusts, is simply not an adequate substitute for the rights taken, given the nature of the property...in holding that complete abolition of both descent and devise of a particular class of property may be a taking, we reaffirm the continuing vitality of the long line of cases recognizing the States', and where appropriate, the United States' broad authority to adjust the rules governing the descent and devise of property without implicating the guarantees of the Just Compensation Clause (citations omitted). The difference in this case is the fact that both descent and devise are completely abolished: indeed they are abolished even in circumstances when the governmental purpose sought to be advanced, consolidation of the ownership of Indian lands, does not conflict with the further descent of the property." One commentator illustrates the issue of testamentary freedom with Shapira v. Union National Bank, 315 N.E. 2nd 825 (1974). Jesse Dukeminier and Stanley Johanson, Wills, Trusts, and Estates (6th ed. 1999). In that case, Dr. David Shapira left a will providing that his son, Daniel, would receive his bequest only if Daniel married a Jewish woman within seven years of Dr. Shapira's death. If Daniel remained unmarried for the seven years, or if he married a non-Jewish woman, then his share of the estate would go to the state of Israel. After Dr. Shapira's death Daniel brought suit arguing that his father's restrictions violated his constitutional right to marry protected by the Fourteenth Amendment of the Constitution. The constitutional protection extends to the enforcement by state judicial proceedings of private restrictions that would be prohibited if done by a state legislature.2 Daniel argued that his father's restriction on Daniel's constitutional right to marry could only be enforced by the state courts and was therefore unconstitutional. In Shapira, the Ohio Supreme Court held that the right to receive property by will is a creature of law and not a right guaranteed or protected by either the Ohio or the U.S. Constitution. The Ohio Supreme Court examined cases in other jurisdictions to the same effect. One case was an early Virginia case, Maddox v. Maddox, 52 Va. 11 Grattan's 804 (1854), where the testator left property to his niece if she married a member of the Society of Friends. When the niece arrived at marriageable age there were only five or six unmarried men of the Society in her community. She married a non-member and lost her membership in the Society of Friends. Virginia’s Supreme Court of Appeals Court (now the Virginia Supreme Court) held the condition to be an unreasonable restraint on marriage and therefore void. Because there was no gift over on the breach of the condition, the condition was held in terrorem. The Ohio Supreme Court distinguished Maddox because Dr. Shapira left a gift over to the state of Israel. In addition, the Ohio Supreme Court took judicial notice of the fact that although the Jewish community was small in Daniel's hometown it was an "important segment" of the local population. Additionally, due to the ease of modern travel and long-distance communication, Daniel was not unreasonably restrained from finding a marriage partner who fit his father's requirement. Ohio thus upheld Dr. Shapira's right to transmit his property as he wished. Similarly, Restatement (Second) of Property: Donative Transfers § 6.2 (1983) provides that a restraint to induce a person to marry is valid if the restraint does not unreasonably limit the transferee's opportunity to marry. The likelihood of marriage is a factual issue to be determined by the circumstances of each particular case. Other types of restrictions are not upheld. For example, a provision that would only be operative if someone becomes divorced is generally unenforceable as against public policy. Another example is illustrated in Gigardi Trust Co. v. Schmitz, 20 A.2d 21 (Md. 1941), which invalidated a condition prohibiting the donees from communicating with a disfavored family member. The Maryland Court of Appeals reasoned that allowing such a condition would be against public policy; the condition encouraged a breach of the peace and harmony of families and the society at large. Judge Richard Posner, a leading proponent of analyzing law with regard to the economic efficiency affect of decisions, criticized the Shapira case as illustrating the shortcomings of the traditional judicial approaches to such cases. Under the traditional approach, a court would simply enforce or refuse to enforce the condition based on a "reasonableness" standard. Judge Posner explained this approach as "wholly devoid of an economic foundation": "Consider, however, the possibilities for modification that would exist if the gift was inter vivos rather than testamentary. As the deadline approached, the son might come to his father and persuade him that a diligent search that revealed no marriagable Jewish girl who would accept him. The father might be persuaded to grant an extension or otherwise relax the condition. But if he is dead, the kind of 'recontracting' is impossible, and the presumption that the condition is a reasonable one fails. This argues for applying the cy pres approach in private as well as charitable trust cases unless the testator expressly rejects a power of judicial modification." Richard A. Posner, Economic Analysis of Law § 18.6 (5th ed. 1998), quoted in Dukeminier, supra, at 34. This type of private cy pres doctrine would not be applicable in Shapira. In Shapira there was a gift over to the State of Israel if Dr. Shapiro did not marry according to the terms of the will. Generally, the gift over precludes a court from rewriting the terms of a trust under a cy pres doctrine. Maryland law sets forth the general cy pres doctrine: "If a trust for charity is or becomes illegal, or impossible or impracticable of enforcement...and if the settlor or testator manifested a general intention to devote the property to charity, a court of equity...may order an administration of the trust, devise or bequest as nearly as possible to fulfill the general charitable intention of the settlor or testator." Md. Code Ann., Est. & Trusts § 14-302(a) (LexisNexis 2006). The key to the application of cy pres is whether a settlor or testator had manifested a "general intention to devote the property to charity." The absence of a gift over is an indication of such a general charitable intent. Miller v. Mercantile Safe Deposit & Trust, 224 Md 380 (1961). More recently the Maryland Court of Appeals looked at this issue in Home for Incurables of Balt. City v. Univ. of Md. Med. System Corp., 369 Md. 67 (2002). In that case the court declined to apply the cy pres doctrine and, rather than invalidate the gift with an illegal condition, excised the illegal condition from the gift. This analysis was exactly what Daniel sought in Shapiro. Generally, transfers at death may be divided into probate and non-probate transfers. Probate refers to the process under which property would pass under a will, if any, and in the absence of a will, property that would pass under the intestacy laws of the state. Non-probate covers all the rest of the property that passes – generally under contractual arrangements. Typical non-probate dispositions include property passing under revocable trusts, IRAs, 401(k)s, jointly held bank accounts and jointly held real property. Most of Maryland’s Estates and Trusts Article governs probate transfers only. Maryland law defines “property” to include all property "which does not pass, at the time of the decedent's death, to other person by the terms of the instrument under which it is held…" Md. Code Ann., Est. & Trusts § 1-101(r). The probate/non-probate distinction must be remembered when reading the various sections of Maryland’s Estates and Trusts Article. Section 1-301, for example, seems to cover all property: "All property of a decedent shall be subject to the estates of decedents law, and upon the person's death shall pass directly to the personal representative, who shall hold the legal title for administration and distribution, without any distinction, preference, or priority as between real and personal property." This provision is more and less than it seems. On the one hand, § 1-301 articulates a change of law from that which existed in Maryland prior to January 1, 1970. Before 1970, title to a decedent's real property passed directly to heirs or devisees upon death. The personal representative of the estate, without an express provision in the will to the contrary, had no interest in the real property. Goldman v. Walker, 260 Md. 222 (1970). Section 1-301 is a very important provision as it relates to the title of real property. Prior to 1970, if a formal estate was not opened, title was vested in the heirs. After 1970, if a formal proceeding was not opened, the real estate remained dormant in the hands of the yet-to-be appointed personal representative. After 1970, one needs to open an estate to perfect title in the beneficiaries of the estate. Any ambiguity in the title of property that was not subject to estate proceedings prior to 1970 flows from problems in identifying heirs, and not from the fact that an affirmative act was missing in the devolution of the property. However, § 1-301 is less than it appears in that it boldly states that "all property of a decedent shall be subject to the estates of decedents law." Non-probate property, however, is generally not governed by this Article. The general limitation of the statute to probate transfers results in a different substantive law for bequests or devises under a will and similar arrangements under revocable trusts. See, e.g., Clymer v. Mayo, 473 N.E.2d 1084 (Mass. 1985). In response to a concern that the protections that have developed over the years and are embodied in the Maryland Code should be extended to revocable trusts, the Maryland State Bar Association supported legislation in the 2001 and 2002 Sessions of the General Assembly that would incorporate various provisions of the Maryland Code to cover the testamentary aspects of "revocable trusts." The General Assembly was not receptive to these suggestions and the law has not been changed. Under the Uniform Probate Code the executor or executrix is referred to as the personal representative. Under Maryland law the personal representative is defined as including "an executor or administrator but not a special administrator." Md. Code Ann., Est. & Trusts § 1-101(q). The reference to executor and administrator refers to the traditional distinction between someone named under will (an executor) and one appointed by the Orphans' Court (an administrator). The personal representative is the person charged with overseeing the winding up of the decedent's affairs. This entails collecting and inventorying assets, managing assets during administration, paying claims and other charges, and then distributing the property to those entitled to receive same. The distinction in Maryland is made between a personal representative and a special administrator. Section 6-401 provides that a special administrator may be appointed upon the petition by an interested party, a creditor, or the register, or upon a motion by the court "whenever it is necessary to protect the property prior to the appointment and qualification of the personal representative or upon the termination of appointment of a personal representative and prior to the appointment of a successor personal representative." Additionally, a request for judicial probate effectively terminates the personal representative's power and converts the personal representative to a special administrator. Md. Code Ann., Est. & Trusts § 6-307. The main distinction between a personal representative and a special administrator is that the special administrator does not have the authority to distribute property. Indeed, the special administrator's role is to preserve the property of the estate. See Md. Code Ann., Est. & Trusts § 6-403. The duties of the personal representative are fairly sweeping. Section 7-101 states that the personal representative is a fiduciary "under a general duty to settle and distribute the estate of a decedent in accordance to the terms of the will" or the intestacy statute. Because he or she is a fiduciary, he or she is governed by the equitable principles generally applicable to fiduciaries and is charged with "considering the interests of all interested persons and creditors." Id.; see also Hartford Accident & Indem. Co. v. Aiello, 497 F.2d 257 (4th Cir. 1974). It has been held that the standard of conduct imposed upon fiduciaries by § 7-101 means that there is an independent cause of action upon the breach of such conduct. Hartlove v. Md. School for the Blind, 111 Md. App. 310 (1996). Currently, however, the Court of Appeals seems to restrict this liability. See Kann v. Kann, 344 Md. 689 (1997); Bresnahan v. Bresnahan, 115 Md. App 226 (1997). Indeed, in light of Kann, the Court of Appeals remanded Hartlove on its second cert. petition, thus calling into question just how independent this independent case of action really is in Maryland. Hartlove, at 244 Md. 720 (1997). Section 7-601 establishes the right of a personal representative to be paid "reasonable compensation" for services. The statute sets out a maximum commission, "unless the will provides a larger measure of compensation, 'that may be awarded' upon a petition filed in reasonable detail" with the Orphans' Court. Section 7-602 provides for the compensation for the services of an attorney in the administration of an estate. Compensation "shall be fair and reasonable in the light of all the circumstances to be considered in fixing the fee of an attorney." Section 7-602(c) states that the Court shall "take into consideration in making its determination" the total charge that would be appropriate as a cost for the administration of the estate, the § 7-601 amount. In practice this usually means that the combination of the commission to the personal representative and the compensation of the services of an attorney for helping in general administrative matters is capped at the § 7-601 amount. It is very important that an attorney not take attorney's fees out of an estate without a Court Order. See Attorney Grievance Commission v. Owrutsky, 322 Md. 334 (1991); Beyer v. Morgan State Univ., 369 Md. 335 (2002). Courts have also held that co-personal representatives are entitled to share in the compensation regardless of who claims to have done most of the work. Maryland Estates and Trusts Article § 7-603 states: "When a personal representative or person nominated as personal representative defends or prosecutes a proceeding in good faith and with just cause, he shall be entitled to receive his necessary expenses and disbursements from the estate regardless of the outcome of the proceeding." This provision is the basis for attorney's fees for representing estates in litigation as opposed to the routine work of assisting a personal representative. A trial judge must determine whether a personal representative acted in good faith and in just cause in defending a will. Loss of the case does not automatically mean that the defense was in bad faith, if so, no personal representative would risk defending an action and accumulating attorney's fees that may end up costing him or her money out-of-pocket. See Fields v. Mersack, 83 Md. App. 649 (1990). Nat’l Wildlife Fed. v. Foster set forth three factors as a test for awarding interim attorney's fees: (i) whether there is prima facie evidence that the personal representative will succeed on the merits, (ii) whether greater injury is done to the personal representative in denying interim fees than would be done to the opposing party by granting the fee, and (iii) whether the party opposing the interim fees will suffer irreparable injury if the interim fees were awarded. Nat’l Wildlife Fed. v. Foster, 83 Md. App. 484, 498 (1990). Under § 8-103, claims against an estate of the decedent are limited to those presented within six months from the date of the decedent's death or two months after the personal representative mails or otherwise delivers to the creditor a copy of a certain notice. There is no question but that this statute governs all of the probate estate. Interestingly, a debt that is secured by a lien on non-probate property can be the basis of a claim against the probate estate. Cunningham v. Cunningham, 158 Md. 372 (1930) (half of mortgage debt on joint property may be claimed against the estate of the deceased joint tenant). As noted, the Maryland claims statute runs from the date of death of the decedent. Earlier statutes that ran the statute of limitations from the appointment of a personal representative were found unconstitutional under the Due Process clause because creditors where not given reasonable notice before losing their right to assert claims. See Tulsa Prof’l Collection Serv. Inc. v. Pope, 485 U.S. 478 (1988). The Maryland statute, of course, does not involve any state action (such as granting Letters of Administration to a personal representative) but simply runs from the date of the death of the decedent. Hence, the Tulsa objection would not apply to the Maryland framework. The Maryland Court of Appeals examined the statute of limitations for claims in probate in Cunninghame v. Cunninghame, 364 Md. 266 (2001). In Cunninghame, the decedent's sister paid hospitalization bills on behalf of the decedent totaling over $36,000. The sister sent the decedent's child a letter with the claim, although the child was not the personal representative when the letter was sent. Indeed, other individuals were named in the will as personal representatives. Those individuals eventually renounced the appointment as personal representative and the child eventually was appointed personal representative. This appointment, however, was beyond the six month claims period. The court held that the claim was barred by limitations because it was not sent to the personal representative. Additionally, the court rejected the claim based on an estoppel theory. In order to support estoppel, the personal representative must have made a clear affirmative representation on which the claimant detrimentally relied. The silence of the personal representative will not support estoppel. There must be an affirmative representation that the claimant need not file a claim with the estate made by one who then has the present power or later has the power to bind the estate. In Cunninghame, the child who later became personal representative was not found to have made any such representation. The Maryland probate system is quite straightforward. The Orphans' Court is the probate court, and comprises of three elected judges, except in Hartford and Montgomery Counties. Traditionally, most judges are not lawyers. In addition, the Register of Wills oversees the accounts. Because Maryland has recently eliminated the inheritance tax for lineal heirs the register's office may be in a period of redefinition as the necessity for formal accounting deceases.3 2 For example, in Shelley v. Kraemer, 334 U.S. 1 (1948), the owners of neighboring properties sought to enjoin Blacks from occupying properties they had bought that were subject to restrictive covenants in their deed. The Supreme Court held that "[t]hese are cases in which the purposes of the agreements were secured only by judicial enforcement by state courts of the restrictive terms of the agreements." Thus, the restrictive covenants were held unenforceable because otherwise the state would effectively implement the unlawful policy.
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